Housing Reform Must Include Government Guarantee: NAFCU Witness

John Harwell, associate vice president of risk management at the $1.8 billion Apple Federal Credit Union in Fairfax, Va., told Congress on Tuesday that NAFCU cannot support housing finance reform that does not maintain government backing of mortgage-backed securities.

“NAFCU and its member credit unions have examined various proposals for reform of the housing finance system and have reached the conclusion that we cannot support any approach that does not maintain an explicit government guarantee of payment of principal and interests on mortgage-backed securities,” Harwell said at a hearing on housing finance reform held by the Senate Committee on Banking, Housing and Urban Affairs.

The hearing focused on protecting small lender access to the secondary mortgage market.

“The explicit guarantee will provide certainty to the market, especially for investors who will need to be enticed to invest in the MBS and facilitate the flow of liquidity in times of economic uncertainty. We think the approach found in S. 1217 (Housing Finance Reform and Taxpayer Protection Act of 2013) where private capital stands in front of the guarantee is workable, and believe this type of approach offers a viable public-private solution,” he added.

Harwell also said Fannie Mae and Freddie Mac both play important roles in allowing credit unions to offer mortgage loans to their members.

“A major part of this comes from the ease of transaction credit unions currently experience when using software provided by Fannie Mae and Freddie Mac. At Apple FCU, we underwrite to Freddie Mac guidelines using their Loan Prospector program,” he told the committee in written testimony.

“The Loan Prospector program is used for all mortgage loans including jumbo loans. Our lending origination system is called MortgageBot. Mortgage lenders and investors make a lending decision by looking at some basic factors: a person's capacity to repay a loan, a person's credit experience, the value of the property being financed, and the type of mortgage.”

Harwell said Freddie Mac's Loan Prospector program “dramatically speeds up the mortgage lending process and reduces the cost of getting a mortgage by using statistical computer models based on traditional underwriting factors.”

He added that the program “never uses factors such as a borrower's race, ethnicity, age, or any other factor prohibited by the nation's fair housing laws.”

Any new system must contain this kind of digital underwriting, Harwell told the committee on behalf of NAFCU.